Bonus tax explained
How a bonus is taxed in the UK, why it can look like a lot and how to keep more.
The short answer
There is no special tax rate for bonuses. A bonus is taxed as ordinary pay through PAYE, added on top of your salary, so the part that falls into a higher band is taxed at the higher rate. You also pay National Insurance on it, and student loan repayments if you have a loan. For most people that means keeping about 63% to 72% of a bonus.
A worked example
Say you earn £48,000 and get a £6,000 bonus, so your total pay is £54,000. The first £2,270 of the bonus sits below the £50,270 higher-rate line, so it is taxed at 20% plus 8% National Insurance. The other £3,730 is taxed at 40% plus 2% National Insurance.
That is about £1,946 of Income Tax and £256 of National Insurance, so you keep roughly £3,798 of the £6,000. Try your own numbers in the bonus tax calculator.
Why it can look like too much tax
- Payroll often taxes the bonus month as if you earned that much every month, so the payslip can show a large deduction.
- Any overpayment is corrected by the end of the tax year, and HMRC can refund it.
- If the bonus pushes your income over £100,000, you start to lose your Personal Allowance, which makes the effective rate on that slice about 62%.
- If you have a student loan, 9% of the bonus above your plan threshold is repaid on top.
Ways to keep more of a bonus
- Ask your employer to pay part of the bonus into your pension. This is often done through salary sacrifice, see salary sacrifice explained.
- Check whether you are close to the £50,270 or £100,000 lines, where a small change in pay can make a big difference.
- Use your ISA allowance for any bonus you save, see ISAs explained.
Where to learn more
This guide is for information only and is not tax or financial advice.